Pain At The Pumps For All Due To Hurricane Harvey’s Wrath – Roger McKnight Explains Why

JOSH O’KANE

Published August 31, 2017

Gas prices continued their sharp rise Thursday as Tropical Depression Harvey continued to force the shutdown of key U.S. petroleum infrastructure, and analysts warned of at least two weeks of sustained high prices, with effects hitting the market for months thereafter.

Colonial Pipeline Co. has shut down fuel lines west of Lake Charles, La., that provide a key link between Texas and the U.S. East Coast, which influences prices in Eastern Canada. The company said in a statement that it expects service to return Sunday, as it inspects infrastructure for storm-related damage and puts together a startup plan.

Even then, some analysts expect the shutdown of the Colonial pipeline and numerous refining facilities along the Harvey-damaged Gulf Coast to ripple through North American gasoline prices until at least next spring, as storm repairs disrupt routine maintenance. Prices of consumer goods could rise in the short term, too, as the affected pipelines deliver not just gasoline but jet fuel and diesel, raising transportation costs on the continent.

Colonial’s Line 1 pipeline, among those shut down, can carry 1.4 million barrels of gasoline a day. Saudi Refining Inc. subsidiary Motiva Enterprises LLC said in a statement on Thursday that “it remains uncertain” when operations would restart at its refining facility in Port Arthur, Tex., the largest in the United States. It can refine 603,000 barrels of crude a day.

“Until we get a better idea of when the infrastructure and logistics can be re-established … we’re likely to see [gas] prices remain very high” for at least two weeks, said Dan McTeague, an analyst with market tracker GasBuddy.com, in an interview. Beyond then, oil and gas facility repairs in and around Houston will continue to pressure prices upward.

Mr. McTeague forecasts that by Saturday gas prices in Toronto and Southern Ontario will have risen 22 cents per litre from the first indications last week, when the price was 110.9 cents, that Harvey would cause major flooding in the Houston area.

While Eastern Canada’s prices tend to align with those around New York State, Western Canada more often reflects U.S. Midwest and Pacific Northwest prices and could see increases of just 10 cents a litre, he said.

Smaller factors could come into play in the coming days to keep prices fluctuating. Long-weekend demand could have a dramatic effect on supply and put upward pressure on gas prices. But cheaper, winter-blend gasoline could hit the market earlier than normal to relieve low supplies, pressuring prices downward.

Petroleum analyst Roger McKnight of En-Pro International Inc. said the long tail of price increases could last three months or more as Gulf Coast facilities undergo repairs.

“Some of the refineries that were going to go on scheduled maintenance may have to delay that, which would put strain on their operating effectiveness,” Mr. McKnight said.

“This means that the normal spikes you see in the spring – February and March – will maybe actually be very severe because of how many refineries are actually able to produce anything.”

Pipeline shutdowns would see price increases cascade well beyond gasoline, he continued: “Once diesel prices start to spike, then those fuel prices are transferred into fuel surcharges, and those are passed onto the consumer for any goods that are hauled by truck. It’s a domino.”

Reuters has reported that at least 37 people have died so far because of the storm. ESAI Energy has calculated that Harvey has left about 4.2 million barrels a day of refining capacity idle. The U.S. Department of Energy announced on Thursday that it would release 500,000 barrels of crude from its strategic reserve to combat rising prices.

“Perhaps the biggest issue in terms of recovery is the interconnected nature of the Gulf energy industry,” IHS Markit energy analyst Jeff Marn wrote in a research note on Thursday.

“Even if crude production can recover quickly without lingering damage, producers will have trouble moving their crude if refineries remain offline or if ports are slow to reopen, or if key pipelines remain down. Likewise, refiners that are undamaged may have difficulty sourcing crude if the ports remain closed,” Mr. Marn continued.

Energy-market data provider Genscape Inc. said it had calculated that 111,000 megatonnes of European gasoline has been diverted to the United States since Harvey began afflicting the Gulf Coast.